San Fran Fed Defends Rate Hike, Says Ignore Terrible Wage Growth Data

It is becoming increasingly clear that, come hell, high water, or dismal data, The Federal Reserve will raise rates in December whether the market likes it (which it will guarantee) or the economy doesn't (which doesn't matter after all).

A month ago, Stan Fischer dropped the first hint when he told Jackson Hole attendees that The Fed could ignore the inflation target because of transitory issues.

Fischer said there's "good reason to believe that inflation will move higher as the forces holding down inflation dissipate further." He says, for example, that some effects of a stronger dollar and a plunge in oil prices have already started to diminish.

 

Fischer added "The Fed should not wait until 2% inflation to begin tightening," thus making that data item irrelevant for deciphering The Fed's decisions.

Then, having warned of global turmoil weighing on her decision to raise rates, Yellen reversed position and brushed off any concerns about global uncertainty.

Yellen removed the "global economic developments" part as well:

 

Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.

 

So no matter what happens overseas, all clear given for rate hikes.

And now, with the final nail in the coffin of data-dependent lies, The San Fran Fed just dismissed 'wage growth' as entirely irrelevent to future growth or inflation...

These results do not imply that wages and prices are unrelated. Certainly they are tied together in the long run, and wage data will surely contain some information for future price inflation. However, after incorporating information from prices and activity measures, the marginal additional benefit of using wage data appears small.   

 

Fundamentally, the weak forecasting power of wages for prices suggests that unexpectedly high or low inflation could occur regardless of the recent behavior of wages.   

 

Researchers have extensively studied how wage data might help predict future price inflation. The overall conclusion of the literature is that wages generally provide less valuable insight into future prices than some other indicators.

 

In fact, models that do not incorporate wages often result in superior inflation forecasts

Thus enabling The Fed to justify a December rate-hike no matter how bad the data they are so dependent on turns out to be... Which explains this chart...

 

As Dec rate-hike odds hit series record 52%... in the face of collapsing macro and micro data.